Debt-settlement firms face crackdown

Midland Mirror

ONTARIO – A crackdown is coming on companies that promise to help consumers reduce their credit card and other debt – sometimes as much as 70 per cent – for a fee.
Concerned about rising complaints against debt-management and settlement firms, Consumer Services Minister Margarett Best is proposing to ban them from charging upfront fees, limit the fees consumers can be charged, and require clearly worded contracts.
Some customers have been charged thousands of dollars before any work, if any, is done on their behalf.
“There is evidence of harmful practices used by some debt-settlement companies, and that is why our government is taking steps,” Best said in a statement. “We want to put a stop to abusive practices.... Consumers should know their rights before they sign contracts and make no payments until they get results.”
Midland trustee-in-bankruptcy Doug Jones, of BDO Canada Ltd., welcomed the proposal.
“This is a very positive move by the government in protecting our local citizens, as well as all Ontario residents,” he said. “Sadly, my offices in the region have seen too many cases of people having spent a significant amount of money in fees to these companies, only to find out they had legal actions taken against them, like liens on their homes.”
The ministry, which has been warning about debt-settlement companies for some time, receives about 70 complaints a month and is reminding consumers that creditors may not necessarily agree to reduce their debts.
About 20 such companies are operating in Ontario, which is looking to catch up with Alberta, Nova Scotia and Manitoba in enacting tougher regulations.
Best’s proposals, which include a 10-day “cooling-off period” for customers who sign contracts, are being put out for public comment before being finalized.
One firm boasts on its website that “we can cut your debt up to 70 per cent,” making customers “debt-free in 12 to 36 months.” It promises to combine all debts into “one simple payment.”
Many debt-settlement companies take monthly payments from customers and let them grow into a big enough pool to make an offer of settlement to a creditor – but not until the debt company takes its fee off the top, said Henrietta Ross of the Association of Credit Counselling Agencies, a non-profit group.
“Some people end up paying thousands of dollars in fees and end up getting sued by their creditors anyway,” said Ross, who has been urging stricter regulations for some time.